XML 42 R30.htm IDEA: XBRL DOCUMENT v3.22.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The following table presents the composition of income tax expense (benefit) for the years ended December 31:
(dollars in thousands)202120202019
Federal
Current$22,581 $4,256 $18,918 
Deferred2,273 (4,273)(406)
Total Federal24,854 (17)18,512 
State
Current361 145 589 
Deferred110 (129)25 
Total State471 16 614 
Total Federal and State$25,325 $(1)$19,126 

The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before income taxes. We ordinarily generate an annual effective tax rate that is less than the statutory rate of 21 percent primarily due to benefits resulting from certain partnership investments, such as low income housing and historic rehabilitation projects, tax-exempt interest, excludable dividend income and tax-exempt income on BOLI. The state tax provision is due to taxable business activities conducted at our loan production office in New York.
The following table presents a reconciliation of the statutory tax rate to the effective tax rate for the years ended December 31:
202120202019
Statutory tax rate21.0 %21.0 %21.0 %
Low income housing tax credits(1.5)%(11.1)%(3.3)%
Tax-exempt interest(1.3)%(11.9)%(2.1)%
Bank owned life insurance(0.3)%(1.8)%(0.4)%
Merger related expenses— %— %0.3 %
Other0.8 %3.8 %0.8 %
Effective Tax Rate18.7 %— %16.3 %
The following table presents significant components of our temporary differences as of the dates presented:
December 31,
(dollars in thousands)20212020
Deferred Tax Assets:
Allowance for credit losses$22,083 $26,051 
Lease liabilities10,876 11,368 
State net operating loss carryforwards5,565 5,489 
Net adjustment to funded status of pension3,922 4,692 
Low income housing partnerships3,270 3,996 
Other employee benefits3,433 2,050 
Other3,973 3,798 
Gross Deferred Tax Assets53,122 57,444 
Less: Valuation allowance(5,565)(5,489)
Total Deferred Tax Assets47,557 51,955 
Deferred Tax Liabilities:
Right-of-use lease assets(9,603)(10,141)
Net unrealized gains on securities available-for-sale(2,004)(7,125)
Deferred loan income(6,697)(6,796)
Prepaid pension(4,566)(5,209)
Purchase accounting adjustments(1,954)(1,971)
Depreciation on premises and equipment(1,107)(1,275)
Other(1,466)(1,245)
Total Deferred Tax liabilities(27,397)(33,762)
Net Deferred Tax Asset$20,160 $18,193 

We establish a valuation allowance when it is more likely than not that we will not be able to realize the benefit of the deferred tax assets. Except for Pennsylvania net operating losses, or NOLs, we have determined that no valuation allowance is needed for deferred tax assets because it is more likely than not that these assets will be realized through future reversals of existing temporary differences and through future taxable income. The valuation allowance is reviewed quarterly and adjusted based on management’s assessments of realizable deferred tax assets. Gross deferred tax assets were reduced by a valuation allowance of $5.5 million in 2021 and in 2020 related to Pennsylvania income tax NOLs. The Pennsylvania NOL carryforwards total $55.7 million and will expire in the years 2021-2041.
Unrecognized Tax Benefits
The following table reconciles the change in Federal and State gross unrecognized tax benefits, or UTB, for the years ended December 31:
(dollars in thousands)202120202019
Balance at beginning of year$1,277 $1,051 $768 
Prior period tax positions— (18)(10)
Current period tax positions54 244 293 
Balance at End of Year$1,331 $1,277 $1,051 
Amount That Would Impact the Effective Tax Rate if Recognized$1,069 $1,027 $848 
We classify interest and penalties as an element of tax expense. We monitor changes in tax statutes and regulations to determine if significant changes will occur over the next 12 months. As of December 31, 2021, no significant changes to UTB are projected; however, tax audit examinations are possible. As of December 31, 2021, all income tax returns filed for the tax years 2017 - 2020 remain subject to examination by the Internal Revenue Service. In 2021, an audit of our New York State tax returns for the period January 1, 2016 through December 31, 2018 concluded with a final tax assessment of $0.1 million primarily related to the qualified loans exemption and Metropolitan Commuter Transportation District tax.